What is Net Worth? Meaning, Formula & How to Calculate Yours

Key Insights

1. What you own minus what you owe is your net worth, which is a straightforward financial health check.
    
2. If your net worth is positive and continues to grow, it indicates that you’re making progress toward real wealth and a more secure financial future.
    
3. Keeping an eye on your net worth can help you make better choices with your money, such as paying down debt or choosing smart investments.

Net worth is calculated by subtracting what you owe from what you own, including investments, property, and other assets. This gives you an idea of your financial health.

Example:

Mayank is a businessman who owns a restaurant and a real estate property. This is the calculation of his net worth:

Mayank’s Net Worth = Total Assets - Total Liabilities = ₹2,05,00,000 - ₹62,00,000 = ₹1,43,00,000

Key Points:
 

• Assets include property, business, savings, and valuables.
   
• Liabilities are loans and debts.
   
• Higher net worth means stronger finances.
   

What is Net Worth?

Net worth equates to the sum of all your assets in the world minus all your debts. It assists in quantifying the level of financial power of an individual.

Example:

Mayank, a businessman involved in the real estate business and the owner of a restaurant, meets the girl's family for marriage. They ask about his financial status, so he explains his net worth like this:

Table:

This table provides a snapshot of Mayank's financial position by listing his total assets and liabilities.
 

Mayank has a positive net worth of ₹1.27 crore, indicating a strong overall financial position.

Mayank’s Net Worth = Total Assets – Total Liabilities = ₹1,88,00,000 – ₹61,00,000 = ₹1,27,00,000

Key Points:
 

• Assets = Property, Business, Savings, Investments, and Valuables.
   
• Liabilities = Loans, Credit Card Bills, and Other Debts.
   
• A positive net worth means you own more than you owe.
   
• Net worth helps in financial planning and big decisions like marriage.

By looking at Mayank's net worth, he is financially strong, which gives the confidence to the girl's family.

Why is Net Worth Important?

Net worth is the total value of what you own minus what you owe. It helps measure financial health and stability.

Example:

Mayank desires to get his son and daughter into a good college years after getting married. He estimates his net worth to make sure that he can afford it ( that is why net worth is essential):

This table details Mayank's updated financial position, listing his total assets and liabilities.
 

Mayank's net worth is ₹2.57 crore, reflecting a strong and improved financial standing with significant asset growth.

Mayank’s Net Worth = ₹3,15,00,000 – ₹58,00,000 = ₹2,57,00,000

Key Points:
 

• Shows Financial Strength: A high net worth means Mayank can afford college fees without stress.
   
• Helps in Big Decisions: Like education, buying a house, or retirement planning.
   
• Tracks Progress: Growing net worth means Mayank is managing money well.
   
• Reduces Debt Burden: Lower liabilities mean more savings for future needs.

The net worth of Mayank assures that he is comfortable caring about the education of his children.

How to Calculate Your Net Worth? 

Net worth is what you possess minus what you are obligated to pay. It is a financial grade card that shows you how well you're doing.

Example:

Mayank takes a pen and a piece of paper to audit his financial situation. This is the way he does it:

This table provides a clear overview of Mayank's current financial standing by listing his assets and liabilities.

Mayank has a strong net worth of ₹2.60 crore, indicating healthy financial stability and effective wealth management.

Mayank's Net Worth = ₹3,20,00,000 - ₹59,50,000 = ₹2,60,50,000

This calculation guides Mayank to know whether he can spare any money to invest in new products or pay the debts first. He is doing this every 6 months to keep track of him.

How to Improve Your Net Worth? 

Net worth, you own less than what you owe. Improving it means getting more assets and fewer debts.

Example:

At 60, Mayank hands over his business to his son and shares tips to grow net worth:
 

In the next 15 years, Mayank accumulated a net worth of 2cr to 5cr through these ways. He instructs his son to do the same disciplined thing.

Conclusion

A net worth is like a financial check-up, showing your financial health by comparing your assets and liabilities. For example, Mayank estimated his net worth at 40, realising his restaurant business was strong, but his debts were consuming profits. Over 20 years, he invested in real estate, paid off debts, and diversified into stocks and bonds. 

By age 60, he had enough net worth to retire comfortably and pass his business to his son. His story highlights that tracking net worth helps make smarter financial decisions, set goals, and achieve security for your family. Knowing your net worth empowers you to control your financial future.

FAQs
 

I don't own property, but can I still have a good net worth?

Yes! Savings, investments, and low debts matter more. Many build wealth through stocks/businesses without real estate.

My net worth is negative. What now?

Focus on paying high-interest debts first while building small savings. Many start negatively but improve with time.

Should I include my phone/car in my net worth?

Only include items with resale value (car, yes; phone, no). Daily-use items lose value fast and don't count much.

How can I increase my net worth faster?

There are two ways to achieve this: earn more (through side income/better investments) and owe less (by paying debts and avoiding unnecessary loans).

Does net worth include my salary?

No, salary is income, net worth counts what you've saved/invested from that income over time.

What's a good net worth for my age?

Aim to have (your age × annual income)/10 by 40. But focus more on progress than comparisons.

Where should I record my net worth?

Simple Excel sheets work, or use apps like Mint/Personal Capital. Just pick one method and stay consistent.

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About the Author

LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.